Health Care Current: January 21, 2014

Can regulation act as a catalyst to improvement?

This weekly series explores breaking news and developments in the U.S. health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory and legislative changes.

Government policy influencing health care change in the world’s two largest economies – can regulation act as a catalyst to improvement?

My Take

The U.S. and China are the two largest economies (by GDP) in the world. Both are trying to implement health care reform to improve access to and affordability of health care for their country’s citizens. Both are experiencing significant pain and facing similar challenges as they try to navigate and drive change. And both are acting with haste and are trying to capture the real opportunities for improvement as they reshape their respective health care systems.

While the U.S and China share similar goals, the policies of each government around providing universal coverage, paying health care providers, using information technology, licensing professionals, ensuring an appropriate supply of clinicians and managing costs vary. But for both of these countries, as these policies evolve, they will not be without unintended consequences.

An increasingly older population will place greater demands on the health care system and on the costs of financing health care:as the population in each country ages, both countries’ health systems will face an increased burden of chronic disease. By 2030, the number of U.S. adults 65 or older will more than double to about 71 million; today, about 80 percent of older adults have one chronic condition and 50 percent have at least two.1 By 2050, China’s older population will likely swell to 330 million from the 110 million today, challenging the national infrastructure.2 While both countries have similar incidences of disease, China has significantly higher mortality rates than the U.S. in certain diseases such as cancer.3 China alone has 114 million or 33 percent of the world’s diabetics and only 7 percent are using insulin.4

Affordability and access to insurance remains variable: While 95 percent of the Chinese population is covered by national health insurance,5 the coverage itself varies widely based on the citizen’s status and where the individual is registered. Those registered in rural areas who have relocated to a city do not get the same level of coverage as citizens registered in the city. The inability of citizens to change their registration status means that they cannot change coverage, which causes access and affordability issues. Out-of-pocket expenses account for more than 35 percent of total health care expenditures in China.6 As of January 2014, the U.S. will have five different types of health insurance – employment-based coverage, Medicare for citizens over 65 years of age, Medicaid for the poor, commercial plans available through the public exchange for those with low incomes and individually purchased, non-subsidized coverage. Despite broader access, coverage will continue to vary, along with price, provider networks, product rules and services and large numbers of people are likely to remain uninsured.

Health care delivery systems that are not constructed to handle demands: Because China has a hospital-based system, the government is working to build a primary care system of outpatient clinics, pharmacies and rehabilitation services. Without a primary care infrastructure, Chinese hospitals are overwhelmed with coughs and colds as well as real emergencies, creating long lines for services, inconvenience and lowering compliance with recommended treatments. From 2009 to 2011, China built 2,116 county-level hospitals, 6,449 township health centers, 2,410 community health centers and 21,000 village doctor’s offices.7 The U.S. has already made much of that transition from acute to ambulatory care, with primary care serving as the anchor for the system going forward. Recent changes in payment policy seek to improve primary care reimbursement, including new payments for care coordination and patient management. In the U.S., we expect to see continued evaluation of payments for new technologies in telehealth, innovative care models and mobile health care applications that will further the shift toward primary- and patient-centric care, helping to improve clinical productivity and lower unit costs.

Health care costs are not at desired levels: the Chinese government wants health care costs to be no more than 7-8 percent of GDP (they currently represent approximately 5 percent of China’s GDP).8 The Chinese government has stated that it won't increase the numbers of public hospitals or largely expand public hospitals; instead, it will focus on reforming public hospitals and making investments in labor, facilities and technologies. By contrast, U.S. health care costs are anticipated to increase from 17.9 percent in 2011 to 20 percent of GDP by 2021.9 The focus in the U.S, therefore, is on trying to find ways to be more productive and efficient and to “bend the cost curve.”

A physician shortage, barriers to effective physician training and risks to practicing medicine: according to the Association of American Medical Colleges (AAMC), by 2020 there will be a shortage of more than 91,500 physicians in the U.S. and that number is expected to grow to 130,600 by 2025.10 The situation is even worse in China where there are only 1.8 physicians per 1,000 population, compared with 2.4 physicians per thousand in the U.S.11 In China, traditional Chinese medicine continues to play a crucial role in local society and only a third of health care professionals have a university degree.12 Poor clinical outcomes in China have resulted in family members assaulting and killing staff at more than 60 percent of hospitals.13 In the U.S., while there is typically no physical risk to practicing medicine, the legal and financial risks through medical malpractice cost the system $55.6 billion a year - $45.6 billion of which is spent on defensive medicine practiced by physicians seeking to stay clear of lawsuits.14

Creating health care provider payments that align with desired outcomes: about 40 percent of hospital revenue is derived from drug sales in China.8 Hospitals prescribe unnecessary therapies because they can charge a 15 percent mark-up on the drugs. Recently, new policies have been introduced to curb over-prescription. Though pharmacies exists throughout the country, reimbursement policy continues to apply to the purchase amount if it is paid by reimbursement budget, further adding inconvenience for drug acquisition. In the U.S., a major challenge is aligning health care provider payments to better outcomes. Performance-based contracts, ACOs, Medicare Stars, primary care medical home, penalties for readmission and bundled payments are all examples of payment models that try to better align incentives between the provider and purchaser.

In both the U.S. and China, continuing developments in government policy will help to dictate the pace of change and the results of health reform. With the election of China’s fifth generation of leadership earlier this year, the Chinese government is striving to address its health care issues by 2020. In the U.S., President Obama’s Administration continues to push forward with the Affordable Care Act, most recently by modifying regulations to improve the chances that individuals can maintain existing coverage or enroll in public exchanges and by removing penalties for those whose policies were cancelled but couldn’t find new coverage by January 1, 2014. We will continue to see how health reform impacts consumers, our health care delivery systems, employers and states as public and private-sector changes continue.

China and the U.S. will continue to face similar challenges – there is no question health reform is difficult – and unintended consequences are likely to impede both countries’ progress. But even if things get worse before they get better, both systems face necessary change. Perhaps they can learn some of these lessons together.

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Implementation & Adoption

HHS report: 24 percent of 2.2 million HIX enrollees are young adults

Last Monday, the U.S. Department of Health and Human Services (HHS) released its latest enrollment report for health insurance exchanges (HIXs); in total, nearly 2.2 million individuals had enrolled by late December, with federal HIX enrollment accounting for 1.2 million. According to the report, 36 percent of those who have applied and been determined eligible have chosen a HIX plan, compared to 16 percent at the end of November. Report highlights:

1.8 million of the enrollees signed up during the month of December, seven times greater than the number of enrollees for the prior two months combined

79 percent of total enrollees qualified to receive financial assistance for a health plan

Approximately 24 percent of individuals who enrolled by the end of December are between18 to 35 years old

The Congressional Budget Office (CBO) projected in previous estimates that at least 40 percent (2.8 million) of the total projected 7 million HIX enrollees would need to be young adults in order to offset the cost of older adults. Should the number of younger adult enrollees not increase, health plan premiums may increase by 2015.

HHS to release Medicare physician reimbursement data

Last Tuesday, HHS announced that for the first time in 30 years, it will begin releasing physician payment data to the public under the U.S. Freedom of Information Act. In 1980 the agency set forth its policy not to release Medicare physician payment data in response to a lawsuit by the Florida Medical Association in which a district court issued a permanent injunction preventing the release of such information. However, a federal judge in Florida ruled last May that public interest in this information outweighed physician privacy concerns.

Under the rule, individuals and groups seeking Medicare physician payment data must submit specific requests; HHS does not plan to put the data on its website in a searchable format. The agency will use a “balancing test” that weighs individual physicians’ privacy interests against the potential public benefit presented by the release of information to determine what will be released. The Freedom of Information Act contains exemptions that could prevent some information from being publicly disclosed if deemed too damaging to physician privacy. While no patient identity information will be released, the data could be used to track health care utilization and fraud trends across the system. The Centers for Medicare and Medicaid Services (CMS) plan to publish “aggregate” data sets about Medicaid physician services. The agency will also launch a website that will post payments and gifts made to physicians from prescription drug and medical device manufacturers and will expand its Physician Compare website to include health care quality information for clinicians and group practices. This announcement follows similar policy changes by CMS, such as release of the 100 most common inpatient services for more than 3,000 hospitals in May 2013 and the average charges for 30 select outpatient procedures in June 2013.

Reaction: The American Medical Association (AMA) warned that release of this information could be taken out of context, stating “The unfettered release of raw data will result in inaccurate and misleading information. Because of this, the AMA strongly urges HHS to ensure that physician payment information is released only for efforts aimed at improving the quality of health care services and with appropriate safeguards."

PCIP enrollees again granted additional time for coverage: HHS extends deadline to March

Last Tuesday, HHS announced it has extended coverage through the Affordable Care Act’s (ACA) Pre-Existing Condition Insurance Plan (PCIP) from January 31 to March 15. The program was initially slated to end in December 2013 as HIXs were set to launch on January 1, but it was delayed until the end of January due to the technology issues facing enrollment on HealthCare.gov. This announcement will affect the nearly 30,000 patients enrolled in the program, giving them an additional six weeks to transition to plans offered on HIXs. While patients with pre-existing conditions can no longer be denied coverage or charged higher premiums by private insurers, HHS officials indicated they wanted to ensure there would be no coverage gaps due to difficulties patients experienced while shopping for new plans. Approximately 135,000 individuals have enrolled in coverage through PCIP and the agency stopped accepting new applications for coverage in February 2013 due to funding concerns after the program nearly exhausted its $5 billion budget appropriated in the ACA.

FDA: drug manufacturers not responsible for independent social media posts

The U.S. Food and Drug Administration (FDA) released a draft policy guideline indicating that pharmaceutical companies will not be held accountable for product information independently posted by patients and clinicians on “interactive promotional media” sites financially tied to the company (e.g., blogs, social networking sites, online communities and podcasts). According to the policy draft, pharmaceutical companies are “generally not responsible” for content published on linked sites on which they have no editorial, collaboration, preview or review privileges. A company is considered responsible for product promotional communications on sites that are owned, controlled, created, influenced or operated by or on behalf of, the firm, including blogs and social media posts. Drug companies had been concerned about how user-generated content, which often promoted their products for off-label uses or did not disclose side effects of drugs, could affect regulation guidelines. Some experts have raised concerns that the agency’s “generally not responsible” draft language may leave instances where companies could be held accountable. Critics of the guidance suggest that it does not address concerns of companies hesitant to join social media to make information more accessible to consumers due to unclear guidelines. The FDA is accepting comments on the proposal through April 14.

According to a recent report released by the American Hospital Association (AHA), U.S. hospitals provided about $45.9 billion in uncompensated care in 2012, reflecting a $4.8 billion increase from the previous year. Uncompensated care from charity care and bad debt is provided to low-income patients that are unable or unwilling to pay the bill. Uncompensated care does not include underpayment for Medicare and Medicaid services, which combined totaled $56 billion in 2012. Medicare reimburses 86 cents and Medicaid 89 cents for every dollar hospitals spend on patient care.

Health care fraud cases multiply steadily

In 2013, federal prosecutors filed 377 health care fraud cases, climbing 3 percent from 2012 and 7.7 percent from five years ago. Many of the cases originated by HHS eventually escalate to the Federal Bureau of Investigation, though HHS retains control of about 36 percent of the prosecutions. Fraud is estimated to cost Medicare between $60 and $90 billion annually. In 2012 the Justice Department recovered $2.6 billion in health care fraud cases or 68 percent of all recoveries for fraud committed against the government.

Directs $1 billion for the HHS Prevention and Public Health Fund; HIXs are exempt from this fund.

Increases the Centers for Disease Control and Prevention (CDC) budget to $6.9 billion, a $567 million increase from last year. Of the $6.9 billion, $1.3 billion was allocated to protect the U.S. from foreign and domestic threats and disease emergencies. $255 million will go to support bio-defense efforts and $160 million will be set aside for states to address their most pressing public health needs. The CDC will get $30 million for Advanced Molecular Detection, which will help identify potential disease outbreaks earlier and more accurately.

Freezes management and operations at CMS at $3.7 billion, $195 million below last year. The budget bill provides $305 million for CMS to “allow for the timely processing and payment of benefits and the continuation of essential services for the increasing number of Americans who rely on traditional Medicare programs,” but stipulates that none of those additional funds can be used for the ACA.

Requires CMS to provide policy updates to Congress detailing plans to redesignate critical access hospitals; report on rural policies with the Health Resources and Services Administration and criteria used to set payment bundling policies for the Outpatient Prospective Payment System rule within 90 days and include mechanisms to ensure contractors’ compliance in CMS’s 2015 budget request.

While notable funding increases were included for the NIH, CDC and other services, the ACA will see reductions and further restrictions when this bill is signed into law.

D.C. federal judge rules federal tax credits to HIX lawful

Last Wednesday, a District of Columbia (D.C.) federal judge rejected a lawsuit challenging the ACA’s tax credits offered through the federal HIX. The lawsuit, Halbig v. Sebelius, argued that the ACA only intended to offer credits to state-run HIXs and the U.S. Internal Revenue Service was overstepping its legal authority by offering tax credits through the 36 federally run HIXs. Had the court accepted the lawsuit and issued an injunction on premium tax credits, HHS would no longer have been able to offer financial assistance to most individuals to purchase coverage. The lawsuit was the most significant legal battle remaining over the ACA. Similar lawsuits in Indiana, Oklahoma and Virginia are still pending in federal courts; a ruling in opposition of the D.C. court could lead to a U.S. Supreme Court review of the provision.

Around the Country

Final rule encourages states to develop Medicaid home and community-based services programs

CMS released a final rule last week amending Medicaid rules to allow state programs to extend provision of long-term care to older adults and individuals with disabilities to adult daycare centers in conjunction with nursing facilities. This rule enforces Section 2401 of the ACA, which outlined programs to encourage states to offer more home- and community-based services (HCBS) through their Medicaid programs, services that are currently only provided through Medicare. The rule also provides a five-year duration for certain demonstration projects or waivers for programs that provide medical assistance for dual-eligibles (individuals who qualify for both Medicaid and Medicare benefits); includes payment reassignment provisions since state Medicaid programs often operate as the primary or only payer for the class of practitioners that includes HCBS providers; and amends Medicaid regulations to provide HCB setting requirements related to the ACA’s Community First Choice State plan option. States receive a 6 percent increase in Federal matching payments for expenditures related to HCBS.

Maryland announces change in hospital service and payment delivery model

CMS approved a collaborative initiative with Maryland and the federal government to modernize the state’s rate-setting system for hospital services. The agreement will shift the state from a fee-for-service reimbursement methodology to one focused on prevention and quality of care. This change comes in time for Maryland to update the state’s unique Medicare waiver, requiring hospitals to keep low admission fees and hospital costs in exchange for the federal government granting Maryland larger Medicare payments to offset the costs of uncompensated care.

According to the Maryland Hospital Association, the waiver saved the state $45 billion—the largest savings seen over the past 36 years. An estimated $1 billion in Medicare reimbursement would have been lost had the waiver not been maintained. Maryland is the only state in the nation to run an all-payer hospital rate regulation system (all third parties pay the same rate for hospital services), but hospitals found it difficult to show low rates of cost increase. Under the new payment model agreement, hospital revenue will not grow by more than 3.58 percent, the state’s per-capita rate of economic growth, which is expected to generate $330 million in Medicare savings during a five-year period. If Maryland fails to reach this target, then state hospitals would transition to the national Medicare payment systems for two years.

Breaking Boundaries

UK patient records to be shared in vast database with researchers and pharmaceuticals

Beginning in April, anonymous medical histories for every National Health Service (NHS) patient in the UK will be added to a vast database that will be shared with researchers and pharmaceutical companies. The database aims to improve medical research by making medical histories more accessible. Specifically, researchers plan to use the data to understand disease causes, identify side-effects of new drugs and detect infectious disease outbreaks. Some medical professionals have expressed privacy and security concerns, despite the pledge that all patient information will remain anonymous. Households will begin receiving letters from the NHS this week announcing the new database; individuals will have the option to opt-out of having their medical information shared with researchers.

Home device for receipt and transmission of patient data receives FDA clearance

A touch-screen wireless home device that receives and submits patient-generated health care data has obtained clearance from the FDA for marketing by prescription and for sale over the counter without a prescription. The device connects to blood pressure monitors, pulse oximeters, glucose meters and weight scales via USB, Bluetooth or wireless connections, allowing health care professionals to remotely receive patient information. In addition to sending clinical data, the touch-screen device also allows patients to answer questions from health care providers about their medication adherence, eating habits and overall health. The shift toward home health care and performance-based health care payments has opened up an opportunity for mobile monitors and devices to be used as key tools to lower cost and improve quality of care to patients with chronic disease.

PCMH model reduces cost of care and hospital visits while improving population health

A recent report released by the Patient-Centered Primary Care Collaborative in conjunction with Milbank Memorial Fund suggests that patient-centered medical homes (PCMH) could be seeing reduced health care costs. Emergency room and hospital visits decreased during the study, while improvements in population health were observed at the same time. The report, which was based on studies between August 2012 and December 2013, examined cost, utilization, population health, prevention, access to care and patient or clinical satisfaction within PCMH models. Overall the study found:

Decreased cost of health care: per member per month costs as well as total cost of care decreases were observed

Increased satisfaction: overall patient satisfaction and satisfaction with provider communications improved and likelihood to refer family and friends increased

The report recognizes the impact of PCMH model on the health care system as whole, highlighting its strengthening characteristics for accountable care organizations (ACOs). The PCMH model is also recognized a driver in the move away from fee-for-service model through its inclusion in payment reforms.

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